THE HISTORY OF FRANCHISING IN THE UNITED STATES
CO-FALL 2009Author :
Donna Messer 
Donna Messer is a networking expert. She is the author of “Effective Networking Strategies” a Canadian Best Seller. Donna is a motivational speaker, addressing audiences on three continents. To reach Donna or get a copy of her book - www.connectuscanada.com
Franchising has been instrumental in keeping the United States economy going. Three areas have fueled the growth of franchising:
• The desire to expand
• The lack of expansion capital
• The need to overcome distances
The business concept of franchising was adopted by the United States from England and Europe. Transportation and the growing mobility of American solved a major limitation for Franchising.
Franchising began in the 1850’s after Isaac Singer invented the Singer Sewing Machine. He was searching for an effective and affordable way to distribute his product for his company, the Singer Sewing Centre. He ran into problems that stopped his company from becoming successful.
THE PROBLEM
• Lack of capital for manufacturing his machines
• No one was willing to buy the sewing machines without being taught how to use them
THE SOLUTION
• Charge licensing fees to business people to own the rights to sell the machines in certain geographical areas.
• Teach consumers how to use the machines; this would create sales opportunities.
• Use the licensing fees to fund manufacturing; build the machines and ship them directly to his distribution network
Supply and demand, as economies of scale and consumer demand for uniform products merged, more and more national chains appeared.
Frederick Henry Harvey, an Englishman, opened his first restaurant in 1852, and founded the earliest known restaurant chain in the United States when in 1876, he opened the first of the Harvey House restaurants in a terminal of the Atchison, Topeka & Santa Fe Railroad. Since the railroad wanted restaurants for its passengers, they provided Harvey with locations and free transportation of restaurant supplies. By 1887, there was a Harvey House restaurant every hundred miles along the 12,000-mile-long railway line. Harvey believed in quality control and established regular field visits to his restaurants much like those used today by winning franchisors.
Following World War I, with the advance of the automobile, another restaurant innovation occurred – the Drive-In.
In 1919, Roy Allen purchased the formula for his root beer recipe from a pharmacist. Together with Frank Wright, they started A&W Root Beer. Allan needed capital to expand, so he bought out his partner in 1924 and began franchising the A&W concept. Offering car-side service with "tray boys", and later female "car hops" on roller skates to service its customers.
An early franchisee was Sherman and J. Willard Marriott. The Marriott’s were innovators and requested permission to add food to the restaurants to increase unit sales.
White Castle is credited with many innovations in the fast food industry, particularly in their use of advertising and discount marketing, they had the first take out packaging to keep the food warm and introduced the folded paper napkin. They used the automobile, curb service, and an innovative hamburger cooked on onions.
Many of the legendary franchised restaurant chains that began operations over the next three decades included Carvel, Kentucky Fried Chicken (KFC), Dairy Queen, Dunkin Donuts, Burger King, McDonald's and The International House of Pancakes,
Going back to the late 1800's, the automobile and the growing mobility of Americans became the basis for other early developments in franchising. General Motors and Ford led the birth of automotive franchising. The first franchise for General Motors was issued in 1898 to William E. Metzger of Detroit. As the automobile manufacturers solved their distribution problems through franchising and they began the changeover from steam engines to internal combustion engines, there became a need to establish locations for these vehicles to obtain fuel.
Lacking the capital required to purchase the real estate and establish an adequate distribution system to meet the needs of the growing number of automobiles, the oil industry began to establish dealerships through franchising.
Franchising emerged as a force to be reckoned with in the post war 1950's, taking advantage of pent up consumer demand, available franchisees and ideas from the returning veterans and capital provided by separation pay and the GI bill.
The growth of franchising in America was further advanced when prospective franchisees were assured of safety using federally protected trademarks and service marks, essential to the successful local operation of a nationally established franchise system. Before Congress enacted the Trademark Act of 1946, better known as the Lanham Act, trademark protection was at best inconsistent and uncertain.
Once potential entrepreneurs became confident of trademark and logotype integrity and protection, more and more individuals flowed into the selling stream of franchising.
Today, more than 8,000 franchisors and over 800,000 franchisees testify to the increasing growth of an industry that has burgeoned forth from roots dating back at least 2,000 years.
Franchising encompasses a system that is used around the world to sell over 1 trillion dollars worth of goods and services from Tokyo to New York. Currently, franchising is 40 percent of retail trade in the US and 25 percent in Canada.
REFERENCES
Alon, I., Welsh, D. (n.a). Franchising around the world in developed economies: An historical perspective.
Franchise Opportunity 911. (2005). Franchise history
McLees, L. (1996). Flourishing new franchises
Seid, M. H. (2009). History of franchising
• The desire to expand
• The lack of expansion capital
• The need to overcome distances
The business concept of franchising was adopted by the United States from England and Europe. Transportation and the growing mobility of American solved a major limitation for Franchising.
Franchising began in the 1850’s after Isaac Singer invented the Singer Sewing Machine. He was searching for an effective and affordable way to distribute his product for his company, the Singer Sewing Centre. He ran into problems that stopped his company from becoming successful.
THE PROBLEM
• Lack of capital for manufacturing his machines
• No one was willing to buy the sewing machines without being taught how to use them
THE SOLUTION
• Charge licensing fees to business people to own the rights to sell the machines in certain geographical areas.
• Teach consumers how to use the machines; this would create sales opportunities.
• Use the licensing fees to fund manufacturing; build the machines and ship them directly to his distribution network
Supply and demand, as economies of scale and consumer demand for uniform products merged, more and more national chains appeared.
Frederick Henry Harvey, an Englishman, opened his first restaurant in 1852, and founded the earliest known restaurant chain in the United States when in 1876, he opened the first of the Harvey House restaurants in a terminal of the Atchison, Topeka & Santa Fe Railroad. Since the railroad wanted restaurants for its passengers, they provided Harvey with locations and free transportation of restaurant supplies. By 1887, there was a Harvey House restaurant every hundred miles along the 12,000-mile-long railway line. Harvey believed in quality control and established regular field visits to his restaurants much like those used today by winning franchisors.
Following World War I, with the advance of the automobile, another restaurant innovation occurred – the Drive-In.
In 1919, Roy Allen purchased the formula for his root beer recipe from a pharmacist. Together with Frank Wright, they started A&W Root Beer. Allan needed capital to expand, so he bought out his partner in 1924 and began franchising the A&W concept. Offering car-side service with "tray boys", and later female "car hops" on roller skates to service its customers.
An early franchisee was Sherman and J. Willard Marriott. The Marriott’s were innovators and requested permission to add food to the restaurants to increase unit sales.
White Castle is credited with many innovations in the fast food industry, particularly in their use of advertising and discount marketing, they had the first take out packaging to keep the food warm and introduced the folded paper napkin. They used the automobile, curb service, and an innovative hamburger cooked on onions.
Many of the legendary franchised restaurant chains that began operations over the next three decades included Carvel, Kentucky Fried Chicken (KFC), Dairy Queen, Dunkin Donuts, Burger King, McDonald's and The International House of Pancakes,
Going back to the late 1800's, the automobile and the growing mobility of Americans became the basis for other early developments in franchising. General Motors and Ford led the birth of automotive franchising. The first franchise for General Motors was issued in 1898 to William E. Metzger of Detroit. As the automobile manufacturers solved their distribution problems through franchising and they began the changeover from steam engines to internal combustion engines, there became a need to establish locations for these vehicles to obtain fuel.
Lacking the capital required to purchase the real estate and establish an adequate distribution system to meet the needs of the growing number of automobiles, the oil industry began to establish dealerships through franchising.
Franchising emerged as a force to be reckoned with in the post war 1950's, taking advantage of pent up consumer demand, available franchisees and ideas from the returning veterans and capital provided by separation pay and the GI bill.
The growth of franchising in America was further advanced when prospective franchisees were assured of safety using federally protected trademarks and service marks, essential to the successful local operation of a nationally established franchise system. Before Congress enacted the Trademark Act of 1946, better known as the Lanham Act, trademark protection was at best inconsistent and uncertain.
Once potential entrepreneurs became confident of trademark and logotype integrity and protection, more and more individuals flowed into the selling stream of franchising.
Today, more than 8,000 franchisors and over 800,000 franchisees testify to the increasing growth of an industry that has burgeoned forth from roots dating back at least 2,000 years.
Franchising encompasses a system that is used around the world to sell over 1 trillion dollars worth of goods and services from Tokyo to New York. Currently, franchising is 40 percent of retail trade in the US and 25 percent in Canada.
REFERENCES
Alon, I., Welsh, D. (n.a). Franchising around the world in developed economies: An historical perspective.
Franchise Opportunity 911. (2005). Franchise history
McLees, L. (1996). Flourishing new franchises
Seid, M. H. (2009). History of franchising